Welcome to illuminati silver, we tell you the truth about silver.
Today is Tuesday 2nd October 2018 and we are briefly commenting on an article written in
Financial World this month entitled – ‘Quantitative Easing – The End of the Big Easy’ by Paul
Wallace. Paul Wallace is the former European Economics
Editor of the Economist Magazine and the author of “The Euro Experiment” published by
Cambridge University Press (details listed in the description below this video)
Financial World is the monthly publication which members like us of the London Institute
of Banking & Finance receive which discusses topics specifically relating to Banking and
Finance. It’s a serious publication really for Bankers and Banking Students but it addresses
a range of subjects not normally found easily on the internet and certainly almost never
covered by the ‘pumping sites’ which are only interested in lambasting bankers and
demanding that you buy as much gold and silver as you possibly can today.
But banking has many aspects and whilst Investment bankers and speculators undoubtedly have contributed
their fair share to our economic woes, there are also aspects of banking which have to
some extent enabled the West to have levels of prosperity not seen or experienced in other
parts of the World. Anyway the purpose of todays video is to analyse
Paul’s article in which he discusses the phasing out of QE in major economies and asks
how effective has the policy actually been. We shall quote a small part of the article.
It runs as follows: “An extraordinary experiment is drawing
to a close. Led by the US Federal Reserve, central banks embarked upon quantitative easing
(QE) – buying financial assets with newly created money – in response to the 2008
banking crisis. By the end of 2017, the Fed, ECB, Bank of Japan and Bank of England (BoE)
had together made $11tn of purchases. Now the Fed is leading the way in phasing out
QE. The ECB, the last big central bank to adopt the policy, will stop its purchases
at the end of this year. What has the experiment proved?
One thing it has certainly shown is that central banks can do more than move short-term interest
rates, their main policy tool. They resorted to QE precisely because they had already brought
short-term rates down as far as possible in their efforts to foster a recovery after the
deep crisis-induced recession and to combat deflationary pressures. That limit is set
by the “zero bound”, arising from the fact that depositors charged negative rates
can switch into cash, which at least does not lose money. Although both the ECB and
the Bank of Japan pushed rates below zero, their foray into negative territory was limited.
QE broke new ground by enabling central banks to bring down long-term interest rates, such
as yields on bonds with maturities of 10 years or more. Previously, they had been able to
affect long-term rates only indirectly as markets incorporated changes in current and
expected short-term rates into bond yields. Indeed, when long-term rates failed to respond
to the steady tightening in US monetary policy in the mid-2000s, the Fed’s long-serving
chairman, Alan Greenspan, called it “a conundrum”. He further pointed out that as rates fell,
investors would move into riskier assets such as corporate bonds and equity markets and
that influx of capital would spur growth and boost the economy.
Whilst the impact of QE was difficult to assess as different measures provided differing results
with no absolutely clear pattern. We quote a little further from the article:
“In general, the policy tends to depreciate currencies but there are other effects, too.
Research by the BoE in 2016 suggested, for example, that the Fed’s QE had a powerful
impact on equity prices in the UK. Whether or not the BoE or the Fed was responsible,
the rebound in UK financial markets during the first phase of the BoE’s QE was remarkable.
Equity prices rose by 50 per cent between March 2009 and May 2010 while the spreads
between corporate bonds and government bonds narrowed sharply over the same period. The
rally might not have been wholly because of QE but it is hard to imagine that it would
have happened without it. Even so, the wider effect of QE on the economy
has been more modest than many originally expected. The BoE’s purchases of gilts eventually
reached £435bn. But fears that the policy would ignite inflation proved to be well off
the mark. Inflation has recently been above the 2 per cent target in the UK but that mainly
reflects the big devaluation in sterling following the vote to leave the EU. Inflation was around
zero in 2015 and a mere 0.5 per cent in June 2016 when the referendum was held.
In the eurozone, the ECB has more than doubled the scale of its asset-purchase programme,
from €1.1tn to €2.6tn. The buying, originally due to run from March 2015 to September 2016,
has been extended in stages to the end of 2018. Yet inflationary pressures remain subdued.
The headline rate has recently gone above the bank’s target of “below but close
to 2 per cent” but that is mainly because of higher energy prices. Core inflation, which
strips out volatile components such as food and energy, is only around 1 per cent, little
higher than at the end of 2014, when it stood at 0.7 per cent.”
He further points out that no Country in the World has adopted QE more aggressively or
for a longer period of time than Japan which began theirs back in 2001 and is still continuing
with it with its 10 year bond rate still standing at zero percent.
Now this next part of his article is very important:
“Despite these apparently modest effects, it can be argued that QE, together with rock-bottom
interest rates, averted a disaster. The BoE estimated that the initial £200bn of QE pushed
up GDP by between 1.5 and 2 per cent and inflation by 0.75-1.5 per cent. The ECB calculates that
its measures – mainly QE – between mid-2014 and October 2017 will have pushed up GDP and
inflation by 1.9 percentage points cumulatively between 2016 and 2020. No central bank is
keen to highlight one of the most important effects of QE – its impact on the public
finances. Governments have benefited from lower interest rates on new borrowing since
the purchases began. Although national treasuries continue to pay interest on the bonds bought
through QE, they also gain from the bumper profits they get from their central banks,
which are financing the purchases at negligible interest rates. Although many Germans rail
at the ECB’s policy, its effect in lowering borrowing costs has contributed to Germany’s
budget surplus and falling public debt.” He then continues with this conclusion:
“QE has shaped financial markets in the past decade and will continue to do so for
years to come. The purchases may be ending (although not yet in Japan), but central banks
will retain bloated balance sheets for a long time. The ECB is set to follow the BoE in
preventing any automatic rundown in the assets it holds by continuing to repurchase the amount
that matures. The Fed is the only big central bank that is actually shrinking its pile of
assets. It is doing so not through direct sales but by gradually reducing the amount
of maturing debt it repurchases. For the time being, the experiment appears
to have worked. But it is too soon to reach a definitive judgment. The worry about QE
is that, together with ultra-low interest rates, it has fostered a renewal of the risky
behaviour that led to the financial crisis in the first place. There are also arguments
that it has increased inequality by massively boosting the wealth of asset holders. If the
happy days end in tears again, the final verdict on QE may be that it worked too well for its
own good.” Now perhaps from this article by a serious
financial commentator and author to the senior people within the Industry the general consensus
is that the US is certainly for the near future determined to reign back its QE thereby further
strengthening the US dollar compared with other world currencies as its foreign counterparts
are still to some extent dependent on such policies. This is one of the main reasons
why we are not convinced yet that the US dollar has had its day and that whether one feels
QE should have been introduced or not, the reality is that its there and shall continue
to be there for some time to come. With President Trump, assuming he remains in power long enough,
following an US 1st policy, and the FED determined upon higher interest rates into 2019 – we
are confident at least for this decade the US dollar will remain supreme, and what we
have to attempt to calculate taking this as well as a myriad of other factors into account,
is the effect on gold and silver prices. If left to this one factor alone it would press
heavily down upon them despite the fact that they are already at relatively low levels
and especially compared with 2011.
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Disclaimer: Illuminati Silver owners come from a background
of Banking, International Wealth Management and Economics. Having now retired from these
worlds we are not qualified to give investment advice. Therefore, this and other productions
must not be deemed to be giving such advice and merely represent the personal views of
its owners.